'Don't be fooled' by inflation falling to 0.9% in October: Carney warns households that cost of living WILL soar

British households should not be fooled by inflation falling last month and sharp cost of living rises are in the pipeline, Mark Carney warned today.

After data showed inflation in October falling to 0.9 per cent from 1 per cent, the Bank of England governor told MPs on the Treasury Select Committee that 'inflation is going up' as the plunging pound will put pressure on retailers and manufacturers to raise their prices.

He said the October figure was down to very volatile clothing and footwear prices, which had been distorted by unseasonally warm weather. The consumer prices index data defied expectations that inflation would rise to a two-year high of 1.2 per cent.

Transport costs were a major upward influence on the average inflation rate.

But there were signs that sterling's fall is ramping up costs for manufacturers, with the producer prices index showing total input prices rising 12.2 per cent in October, compared to a 7.3 per cent rise in September.

The Office for National Statistics said that the main factors that moderated the consumer prices index were 'prices for clothing and university tuition fees, which rose by less than they did a year ago, along with falling prices for certain games and toys, overnight hotel stays and non-alcoholic beverages'.

Upward pressures on the index came from motor fuels, and furniture and furnishings, which fell by less than they did a year ago.

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The pound, which was already lower ahead of the data, weakened further as the lower-than-expected CPI figure signalled there would be less pressure on the Bank of England to curb rising inflation.

Sterling fell 0.6 per cent to 1.24 US dollars and 1.1 per cent to 1.15 euros.

Martin Beck, senior economic advisor to the EY ITEM Club, expects the October number to 'represent a brief hiatus in what is likely to be a steep upward trend in inflation rates over the coming year'.

'In the near-term, base effects will continue to exert upward pressure,' he added, 'as last year’s sizeable declines in food, petrol and energy prices continue to drop out of the calculation.

Inflation is starting to tick upwards again after three years of falls.

'The producer prices data suggests that the [pound's] depreciation is causing pressures to intensify further along the supply chain, with factory gate inflation reaching its highest rate since mid-2012.

'It is likely to take around a year for the maximum impact of this depreciation to be seen in consumer prices. Therefore, although today’s figures were weaker than expected, we still see CPI inflation getting back to the 2 per cent target in early-2017 and then moving towards 3 per cent later in 2017.'

Jeremy Cook, chief economist at international payments company World First, expects inflation to bite in the New Year: 'Retailers are some of the smartest companies out there and they know it would be suicide to hike prices now pre-Christmas.'

Clothing and footwear has become cheaper than it was a year ago.

He added that today's data 'does little to change our belief that the Bank of England is on hold for the foreseeable future and it will sit on its hands and wait for the data to show it something clearer around a picture of higher inflation and lower growth'.

The ONS said there was 'no clear evidence' that the plunge in the value of pound since the EU referendum result was bumping up shop prices.

The pound's weakness also helped push up output prices to 2.1 per cent last month from 1.3 per cent in September, the ONS said.

It comes as the latest PMI report for the manufacturing industry showed sterling's near 20 per cent slump against the US dollar and 15 per cent fall against the euro since the Brexit vote had triggered the steepest rise in purchasing costs in the survey's 25-year history.

Analysts had expected the inflation rate to be higher than September's 1.0 per cent.

The ONS said the biggest downward impact on CPI in October came from clothing and footwear, where the price of garments - especially women's outerwear - rose 0.2 per cent between September and October compared with a 2.3 per cent jump a year earlier.

The cost of education was also dragging down the cost of living, with overall charges climbing 2 per cent across September and October in contrast to a 3.6 per cent rise over the same period in 2015.

The main pressure came from UK and EU student tuition fees, where the impact from the rise in the cap for tuition fees - introduced for new students in England in 2012 - was smaller this year than in 2015 because nearly all students are paying the higher rate.

Food and non-alcoholic beverages made a small downward impact, with non-alcoholic drinks dropping 3.2 per cent between September and October after coming in unchanged over the same two months a year ago. However, food prices fell less than they did a year ago.

The largest upward pressure on prices came from motor fuels, which climbed 2.3 per cent between September and October.

The price of petrol rose 2.6 pence a litre to 113.8 pence, while the cost of diesel rose 2.7 pence a litre to 116.0 pence.

The ONS said: 'Fuel prices tend to reflect movements in oil prices and part of the increase in oil prices in 2016 can be explained by depreciation of sterling against the US dollar.'

Bank of England Governor Mark Carney said earlier this month that Britons should expect sharply higher costs as the Bank's latest forecast showed inflation shooting up to 2.7 per cent next year.